1. What is Annual Rate of Return?

The Annual Rate of Return (ROR) measures the percentage gain or loss on an investment over a one-year period, accounting for compounding. It standardizes returns of different time periods to annual terms for comparison.

2. How Does the Calculator Work?

The calculator uses the annualized return formula:

Where:

• \( \text{End Value} \) — Current or final investment value
• \( \text{Start Value} \) — Initial investment amount
• \( \text{Years} \) — Investment period in years

Explanation: The formula calculates the geometric average return that would be required each year to grow the initial investment to the final value over the given period.

3. Importance of Annual ROR Calculation

Details: Annual ROR allows investors to compare performance across different investments, assess whether returns meet objectives, and make informed decisions about portfolio allocation.

4. Using the Calculator

Tips: Enter the initial investment amount, current or final value, and the exact time period in years (can use decimals for partial years). All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How is Annual ROR different from simple return?
A: Simple return divides total gain by initial investment, while Annual ROR accounts for compounding over time, giving a more accurate measure of performance.

Q2: What is a good Annual ROR?
A: This depends on the asset class. Historically, stocks average 7-10%, bonds 3-5%. Compare to relevant benchmarks for context.

Q3: Can Annual ROR be negative?
A: Yes, if the investment lost value over the period. This indicates the average annual percentage loss.

Q4: Does this account for additional contributions?
A: No, this calculates return on a single initial investment. For multiple contributions, use Internal Rate of Return (IRR) instead.

Q5: How does inflation affect Annual ROR?
A: The calculated value is nominal return. For real (inflation-adjusted) return, subtract the inflation rate during the period.